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Economics in the land of lakes, caves, and castles

David Zilberman, professor, agriculture and resource economics | September 9, 2014

Slovenia is a small Slavic nation in the middle of Europe, between Latin and Germanic countries (Italy and Austria), and is an embodiment of all three. It has been under Austrian rule for 1000 years, and was freed by Napoleon, who is considered a hero (they have a nice statue of him there). I went there to attend the European AgEcon meeting, and my friends, who were there 20 years ago, warned me that it is drab and gray. But I guess it got a facelift, and it is actually quite cool. People speak English, are friendly, and I enjoyed good, yuppy food (Not Chez Panisse, more Oliveto in Oakland). The great thing about the country is that 30 minutes from the capital, Ljubljana, there is a great lake called Lake Bled, which is a mini Lake Tahoe.

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And not far from there is a great cavern which I toured (…

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..and a wonderful castle in the middle of a cave.

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It was nice to see that AgEcon in Europe is experiencing a revival. It is no longer a geriatric club, which is how I remember from years past, and there are many young faces. One reason is the injection of new blood from Eastern European countries, even though there were not many from the Ukraine and Russia (I guess they had more important things to deal with). The other reason is that agriculture has now become “cool”. With the bioeconomy, ecological agriculture, climate-smart farming, urban agriculture, and concerns about obesity, there continues to be a lot of exciting new things in this field.

I found the most compelling topic of discussion to be about the implications of behavioral economics for policy. It has become apparent that people are not fully rational. Cognitive limitations and the cost of computation may cause people to make suboptimal choices. To what extent should government policy interfere and correct their decisions? There are some proposals to nudge people towards the ‘right’ decisions, but what is the limit to the nanny-state? Jayson Lusk, from Oklahoma State, suggests that behavioral knowledge should be mostly utilized for situations where traditional economic knowledge justifies intervention. For example, when firms (or individuals) cause indirect harm to others (externalities) and when individuals do not sufficiently contribute to public goods. But what about helping people to control their weight, save for retirement, etc.? We have a dilemma between freedom of choice and desire to correct errors.

One area of research on policy design is the environment. Generally economists love to empathize financial incentives, but Cathy Kling of Iowa State suggested that one way to control the run-off of fertilizers to rivers of Mississippi is regulation that will require certain practices, for example planting a cover crop. She argues that once people are required to grow cover crops in the off-season, it will lead to innovation that will result in improved productivities and extra value. To some extent, this is a form of behavioral ‘correction’ by neo-Classical economists. In another environmental session, Salvatore di Falco from the University of Geneva gave a fascinating talk on agriculture and climate change. He provided evidence that global warming occurs in Africa, mentioning that poor farmers attempt to adapt to it, but it has not been sufficient and the warming contributes to political upheaval. His main message is that we cannot wait and that climate change policy should emphasize both mitigation and adaptation.

The plenary session on production economics displayed a big divide in agricultural economics, especially in Europe. Berkeley alumni Bob Chambers from Maryland presented a brilliant technical analysis on how to analyze the cost of uncertainty in production. Professor Ika Darnhofer from Austria had a beautiful presentation on an alternative approach that downplayed quantitative analysis, and emphasized concerns for maintaining resilience and preserving societal coherence by supporting traditional diversified farming systems. Both presentations emphasized the importance of dealing with uncertainty, and Chambers even provided tools to measure it, but Professor Darnhofer presented a central European perspective that justifies the prevailing subsidy programs in Europe.

As expected, I participated in sessions on biotech and biofuel. In the biotech session, Justus Wesseler and others documented some of the losses to Europe and society from the excessive regulation of biotech and most of the audience seemed to be quite sympathetic to the argument (I guess it might have been a case of self-selection). In the biofuel session, I argued that governments in the US and Brazil use climate change to promote biofuel policies that actually address balance of payment issues and government deficit problems, and provide support to farmers. Others presented evidence suggesting that this holds true in Europe. One point that was raised by Alan Matthews, president of the EAAE, is that while Europe and other countries around the world are excited about the bioeconomy, people are very cautious and worried about promoting biofuel and biotech, both of which are key elements of the bioeconomy.

Altogether it was a nice conference in a wonderful location and I recommend Slovenia for an enjoyable vacation in the middle of Europe. About a month ago, I attended the American AgEcon Conference in Minnesota, which has many lakes and taverns but no caverns. Both conferences had some great sessions and many mediocre ones. In the larger American meeting, the emphasis was on indoor social activities and the reunions of alumni of major AgEcon depts. While in Europe, there was much more emphasis on outdoor tourist activities. From both meetings, I learned that the AgEcon research agenda is quickly evolving, and I was encouraged by the enthusiasm of the new generation of scholars.

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